FROM BARNS TO BIG BOXES REDUX 2012 NEW LAWS, NEW ECONOMY

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Clifton Price
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FROM BARNS TO BIG BOXES REDUX 2012 NEW LAWS, NEW ECONOMY Trust

Statement Balance Amounts For Each Client Proposed Opinion

managing lawyers are regularly educated on security risks and

1 FROM BARNS TO BIG BOXES REDUX 2012 NEW LAWS, NEW ECONOMY Trust Accounting- 3-way Reconciliation Trust Account Balance Bank Statement Balance Amounts For Each Client Proposed Opinion 2011 FEO 7: Law firm may use on-line banking but only if managing lawyers are regularly educated on security risks and actively maintain end-user security. Positive Pay Rynoh Live

2 2011 Lawyer s Trust Account Handbook What Do We Do About This?

3 Do Not be an easy target! Payoffs and Satisfactions of Prior Liens The lawyer's engagement letter, the lender's loan closing instructions, and the lawyer's representations to the clients establish the expectations of the clients. To avoid any misunderstanding, the lawyer must explain any limitations on her representation. Specifically, if she does not intend to obtain the cancellation of record of the paid deed of trust, she must so advise her clients. Explanation must sufficiently to allow the borrowers to make reasonably informed decisions about the representation 99 FEO 5

4 FRAUD #3: Twist on Disbursement Scam--Loss Mitigation 7 Attorney worked for months with a short sale specialist who was working with borrowers who were in foreclosure, found buyers who took out a reverse mortgage to purchase, seller cooperated, they paid off liens and cleared issues in order to close. For months the prior lender s loss mitigation department worked with them to get approval letters for the contract and revisions to allow for payment of up to $30,000 in liens, one of them an unrecorded judgment. Price kept going up to cover new issues, but apparently common on short sales. Finally, in August, everything came together and the lender agreed to the terms of the pay off to close and release the mortgage. Wire instructions stated that there was an investor who would receive the funds, and it had to be a wire. Attorney is contacted in March, over 6 months later, by an attorney for the lender who claims to never have heard of the mitigation company and never received any pay off, never agreed to any short pay off. 8 Short Sale Disbursement

5 9 Short Sale FACTS Short Sale Fraud Notice 10

6 11 Short Sale Fraud FACTS Short Sale Fraud Losses 12 Possible losses----the lis pendens for the current foreclosure was filed in June of The foreclosure has now been completed and a sale is being held shortly. Seeking to recover the $143,000 payoff to EYU. We have an owner s policy of $270,000, new loan policy of $190,000. It turns out the buyer of the short sale is an 80 year old friend of the 64 widower seller, and widower/borrower/seller still lives at the property with the buyer. Do we owe coverage to this person? This may even be a bigger fraud, more of a standard short sale fraud, but buyer and seller all thought they were following the directions of the foreclosure rescue realtor they knew from church.

Short Sales 13 The title is a misnomer. There isn t anything short about them. Typically they involve detailed closing processes, with conditional mortgage payoff requirements.

We advise to seek advice from title counsel.

7 Short Sales 13 The title is a misnomer. There isn t anything short about them. Typically they involve detailed closing processes, with conditional mortgage payoff requirements. Often there are requirements tied to an on-going bankruptcy. READ YOUR LENDER S CLOSING INSTRUCTIONS AND THE PAYOFF INSTRUCTIONS CAREFULLY. Don t be pressured into quickly closing for a seller. We advise to seek advice from title counsel. Short Sale Fraud Characteristics 14 In short sale fraud, perpetrators are taking advantage of the fact that lenders, servicers and title companies are still refining their processes, including: Falsifying the parties to the transaction Falsifying the true value of the property Falsifying the amount owed Falsifying essentially any material and necessary information

Short Sale Fraud Characteristics 15 Red flags of short sale fraud include: Sudden default, no workout discussions, and immediate offer at short sale price; Ambiguous or conflicting reasons for

8 Short Sale Fraud Characteristics 15 Red flags of short sale fraud include: Sudden default, no workout discussions, and immediate offer at short sale price; Ambiguous or conflicting reasons for default; Mortgage delinquency is inconsistent with borrower s spending, savings and other credit patterns; Short sale offer is from a related party; Short sale offering price is less than current market; Cash-back at closing to the delinquent borrower, or other disbursements that have not been expressly approved by the lender (sometimes disguised as repairs or other payouts). Recent Short Sale Scheme Short sale approval letters appeared legitimate (i.e. closing costs predetermined, maximum commissions set, no monies to junior lien holders etc.), but were NOT CONFIRMED with BOA BOA allegedly approved short sales very quickly -- less than one month, and for amounts significantly less than the fair market value of the property (i.e. leaving equity behind) At closing, funds were wired to a legitimate BOA account TWO WEEKS later, BOA returned the funds because payoffs were not approved During the two week delay, insured grant deeds were recorded, and in some cases the properties had been flipped for considerable profit.

9 SHORT PAY FRAUD Seller was in the process of negotiating a short sale with his lender, Bank, through the services of a third-party short sale negotiation company. No real estate agents involved. Buyer was purchasing the property using a private lender and the sales price was $200,000, pending approval from the existing lender. Bank issued their short pay letter approving the sale for $200,000, no later than June 27, New lender's funds and extension letter (purportedly) from Bank and came in on June 28, 2011, extending short pay letter was July 1, Contacted loss mitigator at Bank to confirm Extension letter not from Bank s loss mitigation department, normal address, , phone/fax Bank responded that NOT AUTHORIZED letter balance was over $1,000,000 Seller, buyer, third party short sale negotiation company did not return calls Buyer s lender requested their funds back returned to exactly same account from which received Moral Of The Story DO NOT RELY ON THIRD PARTY UNVERIFIED NEGOTIATORS CONFIRM WITH THE SHORT PAY LENDER S DIRECT OPERATIONS Preventing Short Sale Fraud Conduct an online search of the names of all parties to the transaction to see if anything unusual pops up In the BOA scheme, the buyer had a prior recent arrest for fraud Contact the lender or the foreclosing attorney to verify that the short sale approval letter is legitimate If the lender won t provide the information directly to the title company, insist that the borrower/seller consents to allow the lender to provide the verification Disburse payoff funds directly to the lender be very skeptical of any funds going to the borrower/seller or other third parties Get the executed mortgage satisfaction and record it as soon as possible after closing Freddie Mac now requires all parties in any short sale to sign an affidavit, attesting that it is a true arms-length transaction.

10 Your Fraud Vaccine 19 Verify that the short sale mitigation company represents the prior lender, contact the prior lender directly. Contact the foreclosing law firm to verify have all funds included in pay off. Follow up to get the satisfaction quickly after payment. Disbursement: Wire needs to go into the account of the actual lender unless you have written proof from that lender that there is a servicing agreement in place and they consent to that payment. Do not pay an investor directly. Conduct an online search of everyone s name to see if anything pops up. This foreclosure rescuer realtor was reportedly arrested last December for some sort of rent fraud and his name came up on complaint boards before this closing. Listen to your gut. Conduct an online search of everyone s name to see if anything pops up. Frequently, the rescuer s name has come up on blogs and complaint sites previously. The rescuer may already have posted arrests or a criminal record.

11 Fraud Vaccines 21 Settlement Statement must show EVERY disbursement & ACCURATE payee. NEVER reflect monies going into and out of your account unless they actually do. ALWAYS disclose to the lender if they are aware of any monies (or benefit of a forgiveness of a debt to the seller) going back to the borrower or his relative. ALWAYS make sure that the commitment accurately reflects the status of the vesting of title with the accurate number of deed transactions.

Fraud Schemes and their Characteristics

Fraud Schemes and their Characteristics Resources to Help You Combat Mortgage Fraud Fannie Mae is committed to working with our industry partners to help combat fraud by providing this list of fraud schemes